Confidence among US homebuilders unexpectedly fell in January, as costly sales incentives outweighed a recent boost from lower mortgage rates and the president's housing proposals.

An index of market conditions from the National Association of Home Builders and Wells Fargo decreased 2 points to 37 in January, its first decline since August. That fell short of the median estimate of economists surveyed by Bloomberg, who expected a reading of 40. A value below 50 means more builders see conditions as poor than good.

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Builders' downbeat mood puts a damper on some momentum that grew in the housing market in recent weeks as mortgage rates slid to one of the lowest levels in years and home price growth slowed. Sales of previously owned homes in December reached their strongest pace in two years, and new-home sales also rose to 2023 levels in recent months.

Shares of homebuilders and related companies rose sharply earlier this month after President Donald Trump rolled out a flurry of policy proposals aimed at making housing more affordable. But NAHB said most of the survey responses were collected before last week's announcement that Fannie Mae and Freddie Mac would be buying $200 billion in mortgage-backed securities in an effort to bring down mortgage rates. 

There were other challenges that contributed to the lower reading as well.

"Builders continue to face several issues that include labor and lot shortages as well as elevated regulatory and material costs," Robert Dietz, chief economist at the NAHB, said in a statement.

That was evident through the survey's gauge of sales expectations in the next six months, which slipped below the break-even level for the first time since September. Indexes of present sales and prospective buyer traffic have fallen short of that threshold for some time, and both continued to drop in January.

While Trump's ideas gave a "jolt" to industry stocks, builders' gross profits still are expected to decline in the first quarter, partly because of recent weakness in home prices, Alan Ratner, an analyst at Zelman and Associates, said in a Jan. 13 note.

Despite some improvement in affordability, prices are still high overall and mortgage rates remain double their 2021 levels. That has forced contractors to cut prices and offer costly sales incentives, often by buying down customers' mortgage rates. 

Some 65% of builders reported using sales incentives in January, the 10th month in a row the metric has exceeded 60%, NAHB said. Meantime, 40% of builders reported cutting prices, unchanged from last month. 

Across the US, builder sentiment fell in the South, the nation's biggest homebuilding region, as well as in the Midwest and West. Confidence picked up in the Northeast.